Update: As of Thursday afternoon, President Trump has paused tariffs, again, on imports coming from Mexico and Canada that are covered by the United States-Mexico-Canada Agreement (USMCA) until April 2.
As President Trump moves forward with tariffs, the spirits industry is bracing for a trade war that could bring price increases and shake up the backbar.
Effective Tuesday morning, Trump reversed a month-long pause and instated a 25% tariff on imported goods from Canada and Mexico. Additionally, a 10% tariff that was initially implemented on Chinese imports in February will now double.
Retaliatory actions are already underway. Canadian Prime Minister Justin Trudeau announced a 25% levy on C$30 billion ($20.7 billion) worth of U.S. imports, effective immediately, including food and beverage products such as orange juice, peanut butter, wine, spirits, beer, and coffee. Trudeau has threatened to slap tariffs on another C$125 billion worth ($86 billion) of U.S. goods, if Trump’s tariffs are still in place in 21 days.
When tariffs were first announced in February, Canadian provinces responded by threatening to strip American bev-alc products off the shelves. Ontario, the country’s most populous province, has now issued a stop on American-made alcohol effective Tuesday.
Mexican President Claudia Sheinbaum has vowed retaliation and is scheduled to announce her country’s response on Sunday.
American spirit exporters may now experience déjà vu, after rebounding from a trade war during Trump’s first term that particularly harmed craft exports. Canada ($262 million) and Mexico ($139 million) were the second and third top U.S. spirits export markets in 2023, according to the Distilled Spirits Council of the U.S. (DISCUS).
Whiskey exports to the largest foreign market for American spirits are already facing a possible 50% tariff return April 1 if there is no agreement on steel and aluminum or the EU does not extend the suspension of its tariff. Trump’s threat of a reciprocal 25% tariff against other countries, including the EU, may not aid negotiations.
“We are concerned that Canadian stores may take U.S. spirits products off their shelves again and also fear that American whiskey will become embroiled in a new round of retaliatory tariffs,” said DISCUS president and CEO Chris Swonger in a statement on Monday.
The top exporter of American spirits, Brown-Forman, saw stocks plummet on Monday.
Import Tariffs To Impact Consumer Prices, Jobs
With relatively few spirits companies exporting on a global scale, spirits suppliers are mostly facing the impact of tariffs on imports, which could reverberate across the industry. According to an economic analysis by DISCUS, a 25% tariff on distilled spirits imports from Mexico and Canada could lead to a loss of more than 31,000 U.S. jobs.
In 2024, the U.S. imported $5.2 billion worth of tequila, $622 million worth of Canadian spirits, and $93 million worth of mezcal. Tequila importers, in particular, have been preparing for hits: Tequila imports surged +35% year-over-year in January and +25% since December, with 32 million liters shipped, according to the tequila industry’s regulator.
Major companies are warning of losses. In Campari’s earnings report on Tuesday, shortly after the tariffs went into effect, the company estimated the potential impact due to tariffs on Mexican and Canadian goods to be around $36.7 million starting in March and before any mitigation actions, “which are currently being assessed.” The company also expects a potential 12-month loss between $95 and $105 million from the 25% duties on imports from Mexico, Canada and potentially Europe into the U.S.
Meanwhile, the parent company of Jose Cuervo said it could see an $80 million hit due to the tariffs, during its earnings report last week. Diageo will be in a tighter spot than its competitors with nearly half (45%) of the group’s U.S. sales coming from Mexico and Canada – a potential $200 million hit from tariffs. The group suggested in its latest call with investors that it might be able to cover “about 40%” of that loss before considering increasing prices.
Tariffs May Benefit Domestic Suppliers, Standard-Priced Tier
Tariffs are levied on importers, who typically pass those costs to retailers, who then raise the price of goods to consumers. According to the latest Numerator survey, at least 76% of consumers anticipate making changes to their shopping habits in response to tariffs.
“American spirits consumers, as well as restaurants and bars across our country that are still struggling following the pandemic closures, will shoulder the burden of these tariffs,” Swonger said.
On-premise, the impact is likely to be felt at smaller bars and restaurants, who don’t have room or budget to stockpile imported spirits, and may opt for using lower-cost alternatives in cocktails.
That may create opportunities for domestic spirits or below premium-priced spirits, according to some analysts.
Large single-origin imported categories into the U.S., including tequila and other agave spirits, Canadian whisky, Scotch whisky, and Cognac are the most exposed to tariffs, according to the latest report from drinks market research firm IWSR.
“By contrast, U.S. whiskey, vodka and rum, all of which are mostly or completely produced in the U.S., should expect to see gains in domestic consumption as a result of tariffs,” said Marten Lodewijks, president of the IWSR U.S. “Also, standard and below price tiers skew more to domestic production, so a healthy proportion of these segments will benefit from avoiding tariffs altogether.”
The most vulnerable price tiers are likely to be premium and super-premium, according to the report, as the consumer base for higher price tiers tends to be less price-sensitive.